Heads up for jobs day

Yesterday’s Autumn Statement from Chancellor George Osborne was an exercise in cautious optimism, however, sterling moved little as a result. Such is the nature of these releases nowadays is that they are leaked well in advance of their “official” publication and therefore there was little new for the market to react to.

Growth projections up until 2017 were revised higher while budget deficit projections went in the opposite direction. The Office of Budgetary Responsibility predicts that, on the current run rate, the UK would have a slight budget surplus in 2018/19; something we haven’t seen since 2001. Sterling was also unaffected by the Bank of England’s decision to hold rates at 0.5% and asset purchases at £375bn.

The European Central Bank also held rates at 0.25% with the deposit facility remaining at 0.0%. The Bank also decided to revise its estimates of both growth and inflation through until 2015. The ECB now forecasts that inflation will be 1.4% in 2013 and 1.1% in 2014 – both lower – and 1.3% in 2015. The bank is simply saying that, while they do not expect further drastic, disinflationary shifts in the coming years, there will be weak inflation for a time to come and prices will remain far from the ECB’s 2% target. The ECB decided to hold its 2013 GDP forecast at -0.4%, with next year’s revised higher to 1.1% from 1.0% in September.

Euro went on a run during Draghi’s press conference as there was no further mention of negative interest rates from the European Central Bank; neither in Draghi’s statement or in the press conference. The above inflation estimates also give rise to real doubts about whether the Bank would ever feel them necessary, especially given the impact on already damaged credit markets. The ECB will stay accommodative for a long time – years probably – but certainly sees no reason to go negative yet.

Part of the euro recovery yesterday could also be put down to increased concerns over US GDP. The headline figure of 3.6% annualised was much stronger than had been expected. That works out at 0.9% QoQ – the fastest in the G10. The key is where that growth is coming from. Inventory stocking – businesses refilling shelves – obviously contributes to output as manufacturers are producing goods but leads to false increases in growth expectations. Yesterday’s contribution by private inventories was $116.5bn; had it have been $0 then that GDP figure of 3.6% would have fallen to 0.6%.

Inventories if not sold quickly are normally sold at a loss or written down. This does not make for strong GDP readings further on down the line and the impacts of increased healthcare spending pressures and consumer confidence weakness will only exacerbate these issues.

That being said, USD is slightly higher as we head into today’s payrolls data. Following Wednesday’s ADP number and yesterday’s strong jobless claims figure, the scene is set for a NFP number that could blow expectations out of the water. Market expectations sit at 185k with a range of 115k to 230k. The average of the year so far is 183k, the highest year’s average since 2005’s of 207k. We are looking for 190k today and a slight move lower in the unemployment rate to 7.2%. Decisions on tapering will go right down to the wire on ours and the consensus outcome although we still side with the Federal Reserve’s institutional reticence. The meeting is due at 13.30 GMT

Have a great day and a better weekend.

Indicative Rates

Sell

Buy

GBPEUR

1.1958

1.1980

GBPUSD

1.6332

1.6354

EURUSD

1.3645

1.3665

GBPJPY

166.94

167.14

GBPAUD

1.8045

1.8070

GBPNZD

1.9955

1.9982

GBPCAD

1.7416

1.7440

NZDUSD

0.8178

0.8193

GBPZAR

17.1050

17.1555

USDZAR

10.4688

10.4939

GBPPLN

5.0028

5.0248

EURJPY

139.45

139.65

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